Hummel Station LLC' Construction has been delayed approximately two months, and commercial operations date is now expected around the end of April 2018

Construction has been delayed approximately two months, and commercial
operations date is now expected around the end of April 2018. The delay has
been primarily driven by severe weather and lower-than-expected labor
productivity, due to Bechtel's difficulty in finding skilled workers and
negotiating wages. Despite this, we expect the cash-funded contingency to more
than cover incremental costs, estimated at about $17 million to date. We
further estimate that about $20 million will remain in the contingency fund
once all costs are covered. While we do not currently believe the delay will
materially affect the rating, we note that the project has an obligation to
deliver capacity to the Pennsylvania-Jersey-Maryland (PJM) Interconnection
beginning on June 1, 2018, and any failure to do so could have a negative
impact on the rating.
At the end of August 2017, the total project was 81.8% complete against a plan
of 88.7% to the guaranteed completion date. Engineering is 97.6% complete and
construction is 72.5% complete. There is no change to the construction phase
SACP of 'bbb-'; however, given the lower operations phase SACP, this does not
affect the rating of the project.
The stable outlook reflects our expectation that the project will be completed
in April 2018, a delay of about two months relative to original expectations.
We expect that it will then earn DSCRs of about 1.4x on average, with a 1.36x
minimum during the term loan B period. This hinges on continued stability in
capacity payments and a robust PJM energy market, as well as availability of
about 94%. This should yield leverage of about $590/kW at maturity, leaving
the project with refinancing risk.
We would consider a downgrade during construction if change orders became
substantial, leading to considerable cost overruns that exceeded the cash
contingency, or if construction delays caused an inability to meet the heat
rate call operation (HRCO) agreement terms or capacity obligations for a
prolonged period. Thereafter, lower ratings could stem from a weaker energy
and capacity market or performance that is beneath our expectations, possibly
resulting in a minimum DSCR under 1.35x or an increase in debt outstanding at
maturity. We could also lower the rating if the project failed to sweep cash
to the senior debt as expected, leading to increased refinancing risk and a
PLCR below 1.5x.
While unlikely at this time, we could raise the rating if market conditions
improved significantly in PJM, such that minimum DSCRs during the term loan B
period exceeded 2x. Furthermore, the strengthening of existing HRCOs could
lead to lower market risk and, possibly, higher ratings.